the election results as seen by global markets

After a seven-week election, Narendra Modi is all set to take oath as Prime Minister of India for the third time. In this mandate, however, “it will depend on support of its coalition partners”.

Modi towards the third term

He underlines it Amol Gogate, manager of Carmignac Portfolio Emerging Discovery explaining that “one of the reasons why Modi was such an effective leader is that his party had a simple majority. The market, or companies, have never had to worry about a coalition partner blocking a particular reform or legislation. His policies in support of business and his fiscal orthodoxy have undoubtedly supported the strong performance recorded recently by India”.

Fortunately for Modi – continues the expert – his two major coalition partners (N Chandrababu Naidu and Nitish Kumar) are both reform-oriented politicians with long experience of collaboration with the BJP. Both were part of the NDA coalition with Modi's mentor, Atal Behari Vajpayee (prime minister from 1999 to 2004). That coalition is remembered for the economic and governance reforms that laid the foundation for India's decades-long economic growth.

The results seen by global markets

However, managing a coalition “could somehow slow down the pace of government execution. To ensure he can push forward with his ambitious economic agenda, Modi will have to follow his mentor Atal Behari Vajpayee, who espoused the 'coalition dharma'.

While the election results have certainly dampened markets and sentiment in the short term, they demonstrate that India is a true democracy. And with Modi at the helm, the next phase of economic development appears likely to proceed and the long-term investment thesis for India, for now, remains strong.”

The increase of capital allocation by global investors – continues Gogate – “it will probably be a catalyst for the country's future growth. Investment in the Indian stock and bond market has so far been predominantly domestic, but two events could shake things up: India's inclusion in JP Morgan's widely followed emerging markets government bond index starting in June 2024 ; and the inclusion of eligible Indian bonds in the Bloomberg Local Currency Emerging Markets Index, starting in September 2024.”

According to our estimates, these two events “they could bring in up to $40 billion of new foreign investments. As international investors become familiar with the country, this development should also transfer to the rest of the world stock markets”.

Is the upward trend continuing?

This capital boost, combined with Modi's pro-business approach and a well-managed national financial system, “it means that i Indian markets are ready to continue their upward march. However, given that valuations are already high and the political environment is more uncertain today, volatility could increase, so selectivity becomes increasingly important. In our view, small and mid-cap companies will benefit from a likely investment growth cycle, as will financial services, high-end manufacturing and real estate. The most innovative businesses with the greatest potential for rapid growth will emerge thanks to a highly supportive ecosystem for growing companies.”